Thursday, June 8, 2017

PPPs in Railway Stations

The much awaited railway station modernisation and redevelopment on PPP is finally about to take off with the Habibganj station, near Bhopal.

A few observations

1. This is a great opportunity to have Transit Oriented Development (ToD) by allowing much much higher FAR around the station than permissible under the local municipal laws which govern such developments. In fact, I would go ahead and propose FAR in double digits for these developments. Not only would this be sound urban planning, it would be even more attractive economics and politics. The positive impact of a huge number of residential and commercial units entering Bhopal's stock of such units can be very significant in making property affordable.

2. The present contract promotes largely commercial development and prohibits residential usage. There are two major reasons for such structuring. One, these developments are most likely to end up as residential real estate projects. Two, commercial developments offer higher and stable long-term returns compared to residential units.

But I think both these are disputable on several grounds and the concerns mitigated easily. For a start, apart from the poor infrastructure and its maintenance, the biggest problem with railway stations in India is safety and the public perception of areas surrounding such stations. Commercial use areas, active only during the day times, will only amplify these perceptions and likely turn these areas into uninhabited, crime-infested, soul-less zones.

Instead, mixed use areas, with a significantly large share of built-up area allocated for different categories of housing, will only make these areas more liveable and attractive. Further, there should also be significant allocation for institutional facilities. In fact, mixed-use development will increase the commercial value of the commercial units themselves.

More importantly, imagine a world of twenty years from now, when the greater Bhopal urban agglomeration would have developed with adequate rail transit connectivity, and traffic congestion would have peaked. The most efficient urban planning response to this most likely scenario would be to densify residential developments around important transit stations. This would enable people step out of their homes, board trains to commute to another location in Bhopal urban agglomeration, and walk to their offices within the railway station premises.

In fact, it may be useful to limit parking space requirements for the residential developments so as to make vehicle ownership difficult. This has to be complemented with strict enforcement of parking restrictions around the railway station area, something which requires close co-operation with the local government.

Finally, the concerns about the redevelopment getting converted into a higher end real estate development can be mitigated by having affordable housing mandates. A significant share, say a third, of all units should be reserved for affordable housing of 400-600 sqft. A costs-benefits analysis of a mixed use development would easily outstrip the net social benefits from a commercial-focused development.

3. These developments should not have the first right of refusals or renewal rights on expiry of the lease. The case against such provisions is made here. While I have not read the documents, I would be surprised if both these options were not available.

4. Finally, when we despair about government agencies working in silos, this is a classic example of Ministry of Railways driving a project which should have involved deep engagement with the Ministry of Urban Development. In an ideal world, the primary stakeholder in this should have been the Ministry of Urban Development.

In fact, at the least, the Ministry of Railways should closely co-ordinate with the local government while establishing these facilities. The effective realisation of the objectives of such redevelopment plans is critically dependent on enforcement and other complementary measures, which are all with the municipal government.